High competition in high-tech spurs drive to protect trade secrets

The world of computers and high technology is changing from faded corduroys into a pin-striped suit - and is facing up to the grown-up problem of how to keep secrets.

Last year, for example, a rapidly expanding East Coast computer company initiated a corporate dress code: No longer could even the president of this multimillion-dollar business sit around in blue jeans.

The pin stripes are symbolic of high-tech's growing belief that more discipline is needed, that the casual early days of the computer industry - which often included sharing information freely - are over. Instead, companies are sinking enormous amounts of money into protecting and securing confidential information. International Business Machines (IBM) alone reportedly spends more than $50 million a year on security.

The reason: Competition is fiercer than ever before, says Sanford Sherizan, a security consultant with SecureData Systems.

But while high-tech firms pay top dollar to shield their confidential information, the industry is not paying much attention to the ethics question raised by increased stealing of trade secrets, not only by foreign companies but by domestic competitors.

The concern over international industrial espionage started several years ago with the discovery of sensitive trade secrets being smuggled to the Soviet Union and Eastern Europe. The spotlight shifted last year to foreign allies of the United States when the Federal Bureau of Investigation got involved in tracking down employees of Japanese companies accused of stealing trade secrets from IBM. IBM filed both criminal and civil charges against Hitachi and Mitsubishi, some of which are still pending.

But with IBM filing a new lawsuit last week against an American company, Cybernex Corporation, the spotlight is now on the domestic side of industrial espionage.

This is not the first time IBM has sued for theft of trade secrets, especially since it decided to take a public stand on the issue by doggedly pursuing violators. Most computer firms avoid lawsuits and the publicity that comes with it.

''IBM takes extensive precautions to safeguard its trade secrets and we'll do what's necessary to protect them,'' says Ed Manas, an IBM spokesman. IBM dominates the computer business, and many small companies rely on knowing what the industry leader is doing and where it is going.

''But you can't have small companies come in and take everything you've got, '' Mr. Manas says. ''People start new businesses every day. But they don't need to steal intellectual property. There are a lot of fast-growing companies who play by the rules.''

In its lawsuit against Cybernex, IBM charges five former employees with stealing trade secrets and unfairly competing in the production of the part of a computer called a film head which, Manas asserts, IBM has spent $200 million and 14 years to develop.

In Massachusetts, lawmakers this week considered a bill that would expand the definition of ''trade secrets'' to include ''intellectual property.'' In other words, it would make it a larceny to dip into another's computer files and copy the information. That's important for further protection of trade secrets, says William J. McCarthy, counsel to the Associated Industries of Massachusetts. In testimony before the legislature's Committee on Criminal Justice, Mr. McCarthy called industrial espionage ''a growth industry.''

''People just take other people's ideas that it has taken years and millions of dollars to develop,'' he says. A company has to protect what it has. Thus, extensive - and expensive - security measures are put in place. The result: The price of the product must be increased to cover the high cost of security.

As research and development becomes increasingly expensive, the bigger and richer companies that have doled out a lot of cash to research a new product are eager to protect their information. But the scrappy small businesses are scrambling to discover the latest developments.

''Many of the small companies are in a do-or-die position and have to establish themselves quickly,'' consultant Sherizan says.

Often, the transfer of ideas takes place when an employee spins off a company of his own. Signing a waiver saying that the employee will not disclose confidential data is standard operating procedure in the computer world. But employees have always been spinning off new ventures after working for larger producers: Digital Equipment Corporation begat Data General, which begat the Stratus Corporation. And giant Honeywell Inc. spawned Prime Computer, which in turn spawned Apollo Computer.

So industry observers point out that stealing trade secrets is nothing new. The hotbeds of high-tech - Boston's Route 128 belt, the San Francisco Bay Area's Silicon Valley, and others dotted across the country - were built on the use of other companies' trade secrets.

''If a firm hires bright, aggressive people, they are likely to set off on their own,'' says Charles Baker of the Massachusetts High Technology Council. Companies are apt to treat their employees better as they try to avoid having their talent raided or recruited, he notes.

It is generally understood in the high-tech business that it's important to know what the competition is doing. Reverse engineering (taking apart a competitor's new product to see how it is built) and reading the wealth of information available in public libraries are acceptable methods of finding out what the other guy is doing.

But as the computer industry matures, lawsuits and new legislation may continue to be called on for a time, to force some in the industry to scrutinize their ethics.